"Racialized workers in Ontario are significantly more likely to be concentrated in low-wage jobs and face persistent unemployment and earnings gaps compared to white employees — pointing to the “uncomfortable truth” about racism in the job market, according to a new study." Read the Toronto Star's coverage of our updated colour-coded labour market report, released […]

The Ontario government is planning to upload Toronto’s subway, claiming it will allow for the rapid expansion of better public transit across the GTHA, but that’s highly doubtful. Why? Because Minister of Transportation Jeff Yurek’s emphasis on public-private partnerships and a market-driven approach suggests privatization is the cornerstone of the province’s plan. Will dismembering the […]

Getting to doctors appointments, going to school, to work, attending social engagments, picking up groceries and even going to the beach should all affordable and accessible. Check out Ellen Smirl's reserach on transportation equity in Winnipeg in this year's State of the Inner City Report!

In Winnipeg, there is a need for more affordable housing, as 21 percent of households (64,065 households) are living in unaffordable housing--according to CMHC's definition of spending more than 30 percent of income on shelter. This report examines to case studies in two American cities and how their experience could help shape an Inclusionary Housing […]

For the first time, a report outlines what implementation of the United Nations Declaration on the Rights of Indigenous Peoples could and should look like at the provincial level. This report focuses on implementation in BC law, policy and practices. Fundamental to the UN Declaration is an understanding that government must move from a “duty […]

Over at the Behind The Numbers website, I’ve written a blog post titled “Ten considerations for the next Alberta budget.” The blog post is a summary of a recent workshop organized by the Alberta Alternative Budget Working Group.

In recent decades all but the wilfully ignorant have had to face two facts: that climate change is taking place and that it is the result of what we humans are doing. The term Anthropocene was coined in 2000 in recognition of that latter hugely important fact. When had this new era began – and with it the end of the Holocene epoch that had been around for some 11,000 years of climate stability, a transition out of the Ice Ages, that then facilitated the spread of farming and permanent settlements. Some said it was the Industrial Revolution beginning ca 1750 and the enormous increase in the burning of coal and of carbon emissions. Then at a global gathering in 2016, geologists who decide this matter by examination of the earth’s strata ruled by majority vote that this new epoch of the Anthropocene had not actually begun until 1945. Two things were said to be causal. The first was the testing of the first atomic bomb in 1945 and its immediate use and then further testing which left radioactive evidence in the planet’s atmosphere. The second was what has come to be called the Great Acceleration, the leap in global economic growth and in world population post the Second World War facilitated by new global arrangements, and the even more rapid growth of carbon emissions.

At the same time that a consensus was forming on this, it became evident that human effect on the atmosphere had first happened some five centuries ago with the impact of the Old World of Europe on the New World of the Americas. European disease to which the new world had no immunity was utterly devastating. Fifty to sixty million people died, ninety percent of the population. In consequence, the way of life was pervasively disrupted and destroyed and with that withering of farming and settlement carbon emissions declined drastically. The result was not today’s global warming but global cooling. It was a one-shot event, sharp but short-run , but that it effected climate change in its time tells us how the ‘discovery’ of the New World was the destruction of its population.

That’s what the political theorist C.B. Macpherson (1911-1987) saw emerging historically with the rise of capitalism. Frank Cunningham in his just published intellectual biography of Macpherson, The Political Thought of C.B. Macpherson: Contemporary Applications describes possessive individualism as “The individual is proprietor of his own person, for which he owes nothing to society”. That sounds like an apt description of what is true today in the time of neoliberalism. In Cunningham’s words: “possessive individualism now stares one in the face at every turn.” Pervasive marketization has turned amenities and social services into commodities: “university students become clients; homes become real estate investments; cities become global competitors; ideas become marketable possessions.” This book ably demonstrates that and helps an economist of the progressive persuasion analyse our predicament.

Cunningham quite properly insists that possessive individualism is not an essential part of human nature – as is seriously argued by ascending cognitive science – but is historically constructed as political economy tells us. Cunningham likewise tells us that, for Macpherson, the alternative to possessive individualism was “developmental democracy” which transcends market capitalism. Economists can benefit from reading Cunningham’s analysis of what that means with respect to contemporary issues such as globalization, intellectual property, and inequality.

Adam Tooze. Crashed: How a Decade of Financial Crises Changed the World. Viking. New York. 2018

The global economic crisis is now more than a decade old, and is far from definitively behind us. Indeed, many fear, with good reason, that the recent, uneven and lethargic global recovery may soon come to an end, and that the next crisis of global capitalism could be even worse than that of 2008.

The financial crisis and resulting crisis of the real global economy triggered by the collapse of Lehman Brothers and other major Wall Street banks has already prompted the release of a small library of books. ( The best, to my mind, is Martin Wolf’s, The Shifts and the Shocks.) But Adam Tooze provides us with the first truly comprehensive account. It is the work of a contemporary historian who draws on political and economic theory to frame a compelling and disturbing narrative, and is likely to become a standard and indispensable reference.

Over more than six hundred pages, Tooze looks at the origins and implications of the financial crisis around the world, proceeding both chronologically, geographically and thematically. In an extraordinary work of scholarship, he surveys the global political economy and financialized capitalism of the pre crisis period, the unfolding of the financial crisis in the United States and Europe, the spread of the crisis to developing countries and Eastern Europe, the extraordinary response of China, the euro zone crisis and the agonies of Greece and Southern Europe, and the political implications of the crisis.

He offers a coherent account of how the crisis set the stage for the rise of right-wing populism around the world, and speculates on how the global economy may evolve in a new age of explicit and escalating rivalry between the United States and China. What is at stake is the possible collapse of the “neo liberal” global economic and political order.

One relatively novel argument made in the book is that the global economy has to be seen, not so much as a set of discrete national economies trading with each other, as a vast “macro financial” web of corporate balance sheets and financial flows. In such a world, states can rapidly experience an exit of capital and economic collapse without necessarily running large trade or public finance deficits, while the hegemonic power, the United States, can readily finance such deficits by virtue of the unique status of the US dollar as the global reserve currency.

Tooze does not look in detail at the underlying contradictions of the pre crisis period, but he does note the key point that growth in an age of rising inequality and redistribution of income from labour to capital was dangerously reliant upon the growth of private debt, speculative bubbles, and the recycling of global trade surpluses to deficit countries, notably from China to the United States.

He broadly endorses the view that neo liberal capitalism has been associated with “secular stagnation” due to inadequate demand, offset only by the massive expansion of debt. As he notes, the fear was that crisis would result from a collapse of the US dollar, but instead it came from the collapse of global finance due to a massive accumulation of bad debts dispersed across the world. In response to the crisis there was, somewhat ironically, a flight to the US dollar as US government bonds were seen as the safest asset available.

Where Tooze departs a bit from the standard account is in his understanding and insistence that this was not just a crisis of the US banks, but a crisis of global and especially North Atlantic finance. Tight links between the Wall Street banks, the City of London, and the major European banks produced a global systemic financial crisis, not a crisis of so-called Anglo-Saxon capitalism as many European critics have argued. The euro crisis was also the consequence of low quality debt and speculative housing bubbles in some countries (the UK, Spain) rather than the excessive growth of public debt. Indeed the fiscal problem of countries hit by crisis in southern and eastern Europe were mainly the result of the crisis of the real economy which increased government deficits and debts, and the decision of many governments (most notably Ireland) to transfer bad bank assets to the public sector.

Building on the historical analysis of Leo Panitch and Sam Gindin in The Making of Global Capitalism, Tooze argues that the global economy has been economically and politically dominated by the United States, which remained in 2008, and remains even more so today, the only power capable of providing global economic leadership. “The crisis had the effect of recentering the world financial economy on the United States as the only state capable of meeting the challenge it posed.” He recounts how the US Treasury and the US Federal Reserve were absolutely key to resolution of the crisis of the banks in 2008, extending liquidity (very low interest US dollar credit lines) to global and not just US banks.

Similarly, massive US government purchases of distressed financial assets to bail out the financial system through the TARP and other programs were extended from the US banks to major European and even developing country banks. Key officials like Larry Summers and Tim Geithner won the day when they argued for “big bazooka, shock and awe” tactics to stabilize the financial system.

While there was a lot of bungling, experimentation and political resistance along the way, the US Treasury and the US Federal Reserve were indeed able to stabilize the US financial system fairly quickly by a combination of outright injections of new capital and arm twisting to force mergers. “Hair cuts” for those who had caused the crisis by investing in high risk, low quality assets and through reckless speculation and outright fraud were modest at best.

These bail-outs have been widely criticized, with good reason, for saving financial capital at the expense of working people who had to endure high unemployment and a huge wave of home foreclosures. But the US political system, even progressive Democrats included, would not even contemplate nationalizing the banks. In that context, a viable financial system and normal credit flows had to be restored by socializing bad debts.

The alternative to bail outs was to experience what happened in the eurozone, a failure to deal with insolvent banks through “extend and pretend” half measures which postponed an outright collapse of the banking system but without dealing with bad debt. “The eurozone, through willful policy choices, drove tens of millions of its citizens into the depths of a 1930s style recession. It was one of the worst self-inflicted disasters on record.” Tooze argues that the euro area also effectively sidelined itself from any pretensions to global economic leadership.

Fortuitously, US leadership also extended to fiscal policy in response to the collapse of the real economy. The stimulus program of the Obama administration could and should have been far bigger and lasted far longer, as was understood by those who had learned the lessons of the Great Depression in the 1930s, but again it was much more significant than similar programs in the UK and Europe endorsed by a new global forum, the G20 as an immediate fix.. Here there was a quick return to fiscal austerity and deep spending cuts long before growth and employment had recovered, with Germany and smaller Northern European countries demanding harsh and indeed sadistic fiscal measure as the precondition for any help to heavily indebted countries. In the most troubled countries, there was a death spiral as insolvent banks became every more shaky as the real economy collapsed and interest rates soared well above those of Germany.

The euro zone as a whole failed to act until very late in the game, when the European Central Bank finally announced in July, 2012 that it was prepared to “do what it takes” to bring down interest rates on debt denominated in euros. This failure was partly due to institutional architecture (the narrow mandate of the ECB, tight rules on fiscal policy) and partly due to German insistence that recovery had to be based on austerity and wage discipline to restore global competitiveness, without heed to the immediate consequences. Greece was crucified as a salutary lesson to others. Today, the banking crisis is far from fully resolved, most notably in Italy, public debt has reached very high levels in some countries where the crisis has hit hardest, and output has grown little above pre crisis levels while unemployment remains very high.

Toooze further notes and details that China was an absolutely key player in resolving the crisis through massive fiscal stimulus, and continued willingness to retain and expand its enormous holdings of US dollars. “China’s response to the financial crisis it imported from the West was of world historic importance, dramatically accelerating the shift in the global balance of economic activity towards East Asia.” To give an idea of the scale, between 2008 and 2014, China built 10,000 kilometres of rail capable of running trains at 360 km per hour, in the process gaining a massive technological advantage. And health care coverage was extended from 30% to 90% of the population through expansion of subsidies and a massive construction program for health care facilities.

Tooze endorses and details the argument that the bail outs of finance, massive unemployment and fiscal austerity set the stage for a major discrediting of centre left neo liberal parties and the rise of right-wing populism in the US, the UK in the form of Brexit, and much of Europe. In the United States “in the name of economic nationalism and the American dream, the right wing claimed the cause of systemic change, while the Democratic Party establishment filled the middle ground the Republicans vacated. “ Trump explicitly challenges the global capitalist order in the form of America first economic nationalism and rejection of global institutions like the WTO.

More widely, “(s)ince 2007 the scale of the financial crisis has placed the relationship between democratic politics and the demands of capitalist governance under immense strain. Above all, this strain has manifested itself … in a crisis of the political parties that have mediated the two.” Moderate parties of the centre left which championed global capitalism and did little to alleviate the impacts of the global crisis on working people have paid a high political price, threatening the future of the global system as is it still exists. Social democracy in the eurozone has massively retreated as the populist right has rejected globalism and even the European Union itself in favour of economic nationalism and racial xenophobia.

Looking to the future, Tooze notes with many others that the recent global recovery has been built on the fragile base of continued growth in debt with very limited reform of global finance. Future crises are hard to predict, but are inevitable. He could, perhaps, have said more about what a stable and equitable growth model might look like. What he instead stresses, rightly, is the crisis of global political capacity to regulate the system. “With Trump as president and the Republicans dominating Congress, it is an open question whether the American political system will support even basic institutions of globalization let alone any adventurous crisis fighting at a national or global level”

The eurozone is seemingly incapable of resolving its own problems, as not just the UK but also Italy and the right in France look to the exits. Meanwhile, “China’s economic triumph is a triumph for the Communist Party. This is still the fundamental reason for doubting the possibility of truly deep co-operation with China in global economic governance. Unlike South Korea, Japan or Europe, China is not a subordinate part of of the American global network.”

We indeed live in profoundly dangerous times. Fortunately Adam Tooze has given us a narrative and analysis that illuminates where we have been, though he has no clear view of how progressive forces should and could re-shape the crisis prone and deeply inequitable global capitalist system created in the run-up to 2008.

Remarks at a posthumous book launch of his Myth, Mind and Religion at Massey College, University of Toronto, October 2018

For more than 50 years, going back to the days of the old Department of Political Economy, Abe was my colleague in teaching and researching economic history and political economy, my intellectual soulmate, and my closest friend. I have many fond memories.

Let me go back to that wondrous decade of the sixties. This incredible book which Abe has left us begins with what he calls the Radical Decade from the mid-sixties to the mid-seventies, and takes us back to that at the end.

The drabness of he boring 50s, when the conventional wisdom took up all the available intellectual space, morphed into the exciting 60s when suddenly anything seemed possible, from the powerful preaching of George Grant in his Lament for a Nation to, on this campus, that wildest of scholars, Marshall McLuhan – with both Abe and myself participating in his famous weekly seminar.

Even the venerable Department of Political Economy woke up. Under the leadership of Abe younger members of a rapidly growing faculty created the University League for Social Reform, the ULSR, and it began to publish a series of books in Canadian political economy.

Abe became editor of the fusty prestigious Canadian Forum, restructured it editorial board, and restored it reputation as the progressive magazine of Canada’s democratic left.

Abe was a member of a group of faculty and students, including Michael Ignatieff – and myself – which organized a most successful teach-in on this campus on the War in Vietnam.

A major issue on which the orthodox economists had closed their minds was that of foreign, specifically American, ownership of the Canadian economy as the central dimension of the Canadian-American relationship. Abe, though a junior member of the economics profession, had the courage to take a critical stance. He provided intellectual support for the Hon. Walter Gordon, who compelled the Pearson government to appoint a task force to advise on foreign ownership of eight economists including Abe and myself. Our report was a Canadian contribution to that celebrated year which is being widely celebrated at the moment. We briefly brought balance to the discussion of foreign ownership.

What I am saying may sound like a retreat into medieval, even ancient history for, as we know, the neo-liberal message of Thatcher, Reagan and Mulroney was shortly to return us to the status quo of closer integration of the Canadian economy into the larger imperial American economy.

Still, the nationalist surge of the 60s, of which Abe was the resident theorist, while it abated, arguably left as its legacy a clearer sense of what constituted Canadian identity.

Now there is Trump and we could once again use a voice like Abe’s, with its radical message delivered in a moderate tone with wisdom and wit.

Consider arguably the best pun of this renowned punster: “Every dogma has its day.” Can you not hear him saying: “Hard to Trump that.”

Like all sensible folk I was myself opposed to the NAFTA at the outset, convinced that it did more for the corporations than for the rest of us. I’m still of that view.

Is it possible that the biggest change that is now taking place is in the name itself, from NAFTA to USMCA- perhaps done so that Trump can boast that he delivered on his promise to get rid of NAFTA? A number of commentators on both sides of the CanAm border have written, in the words of John Ibbitson in the Globe and Mail, that the USMCA is “essentially the old NAFTA tilted more in America’s favour.” Is that all there is?

Firstly it’s quite a tilt – like the US keeping a special tariff on aluminum and steel from Canada, on the grounds, believe it or not, of national security. Talk about absurdly fake facts.

Let’s go back to the beginning in the late 1980s. US and Canada had just signed the Free Trade Agreement when, with the ink hardly dry, the US insisted on adding Mexico. We thought we’d made a one-on-one deal, a special arrangement that got us inside what our government thought, wrongly as it turned out, was a rising tide of American protectionism, which has now happened a quarter of a century later, and we waited almost a year to join this new round of negotiations. This initial lack of enthusiasm has not stopped us, from that time forward, peddling the praises of NAFTA and fighting hard to keep it.

If we didn’t know it before we now do: that trade agreements go way beyond trade in their breadth of corporate rights making it hard to judge which side of ordinary people gets the net advantage. And we’re also learning, at least in the case of Brexit, that abrogation, untangling it all, is hard to say the least.

Should Canada at some point – and not simply as a negotiating position – have left the table never to return? To come down to earth, recall that Trump said that without an agreement he would impose a 25% tariff on cars made in Canada entering the US. The consequences would have been simply devastating, beyond contemplation, for southern Ontario, for Canada’s industrial base. Significantly, Jerry Dias, President of Unifor, thinks the deal is good enough. It will push up car prices, but that will lessen carbon emissions.

Ibbitson goes on to write that the message from all this is “the mother of all wake-up calls for Canada to diversify.” We’ve got too many eggs in the American basket and have to diversity our trade beyond the American market. That may strike y0u as a no-brainer. But what is being said is that, one trade agreement having failed us, we should sign on to more. Which is what we are already doing.

Methinks that is the wrong lesson. The whole vast apparatus that passes under the name of globalization has gone too far. We need less reliance on trade, not more. We need to strengthen our domestic economy so it plays a bigger role in generating jobs and incomes.

Lest that sounds like whistling in the dark, it isn’t. Most economists admit that globalization has increased inequality within economies. In this regard, less globalization is of itself a good thing. What is likewise in order is active policies, like real rather than fake American-style tax reform, to increase equality within Canada and thereby the demand for goods and services.

One more point. Too much trade means too many goods being transported too far which means too much carbon emitted which means too much climate change which threatens to get us all. I’m too old to do the arithmetic, but diversifying Canadian trade reliance away from the US next door could be a mistake.

“Staples dependency” we know from Innis onwards. It can mean reliant upon, dependent on, the export of staples, and permits of a staple theory of linkages as economic theory. It can also mean a resource margin of a more developed imperium. Economic theory is infused by the power relations inherent in “dependency” and is transformed into political economy. In the shifting fashions of scholarship, over time “dependency” came not to be permitted as appropriate political economy. This in turn meant the purging of “nationalism” as a tolerable response at the risk of losing a political edge. But the idea of a “staples trap” implicit in Innis could not be wished away.

Take the phrase “extraction empire.” “Empire” takes on a new meaning. On the one hand, it is the terrible colonization within Canada of indigenous people. Canada as a settler society is exploiter rather than exploited. On the other hand, it is the transformation of resource exploitation at home into resource exploitation abroad. Comparative advantage in trade becomes over time comparative advantage in outward direct investment, notably in mining. Canada becomes an imperium in its own right, though note this by no means requires it to shed its “dependency” within a larger imperium, such as the United States.

“Extraction” is a potent word that conjures up the wrenching, the wounding of the planet, the violation of nature as technology deeply alters environment. It gives a whole new perception to the staples trap which, in the contemporary case of bitumen, becomes a deadly carbon trap. Governments, national and regional, are sucked into a black hole.

Our old friend Dependency takes on a stark new dimension. Economics alone exposes economic rents, or surplus, which can be captured by the state and in what would seem like the best of all worlds, can be used to help the poor, creating safety nets and building a welfare state. But the society then becomes massively dependent on the surplus from the revenue resulting from resource exploitation, and dangerously exposed to social breakdown in the event of a plunge in the price of the staple – as we are presently seeing with respect to oil and Venezuela.

What triggers these ruminations on staples one more time is the appearance of a monumental 800 page book, titled Extraction Empire, published by MIT Press and edited by Pierre Belanger, a landscape architect at Harvard. Full disclosure: the opening essay in the book titled “Unsettling the Mining Frontier” is mine, billed as a Foreward. It takes off from Innis’s neglected classic Settlement and the Mining Frontier but shows Innis’s limitations as a white male with respect to the consequences of staples exploitation for indigenous people, for women, and for the environment a.k.a nature.

Back to the book which has the revealing sub-title Undermining the Systems, States and Scales of Canada’s Global Resource Empire 2017 to 1217. Counting back 800 years to the Magna Carta which reified property, and distinguished between property rights to the surfaces of lands and subsurface rights. This was critical to the appropriation of rights of indigenous peoples in the so-called New World, who not only failed to make settled use of the surface resources and certainly had no claim through use to sub-surface rights.

September 15th marked the tenth anniversary of the fall of Lehman Brothers, destabilizing Western economies at levels not seen since the 1930s. It also marked the second week of fall classes, with many economics graduate students cranking through equations that define the discipline’s conventional macroeconomic models. With such names as New Classical, Real Business Cycle and New Keynesian, these models can all be traced to the rational expectations revolution of the 1970s, which sought to explain stagflation when the conventional Keynesian framework could not. The rational expectations approach attempted to provide more precise behavioral microfoundations than the Keynesian model by positing that economic actors can form expectations of future economic values, say inflation, such that on average, their predictions of future values tend to be correct. This assumes the actors share the same understanding of the structure of the economy and past economic data. This research program would come to dominate macroeconomic scholarship and strongly influence policy makers, culminating in the creation of the dynamic stochastic general equilibrium (DSGE) model, a popular forecasting and policy analysis tool used in central banks and finance departments.

This approach to macroeconomic modeling came under scrutiny following the 2008 crisis, with Nobel laureate Paul Krugman asserting that most of the macroeconomics over the past 30 years was “spectacularly useless at best, and positively harmful at worst”. While this did spark some soul-searching within the discipline, the debate has been inconclusive. Several policy-making bodies are taking seriously the limitations of 1970s macroeconomics. In its recent Medium-term Research Plan, the Bank of Canada recognises that the crisis has challenged its reliance on New Keynesian DSGE models, encouraging the exploration of alternative modeling paradigms, such as agent-based and stock-flow consistent models.

On Canadian campuses, however, where the next generation of macroeconomists are being trained, there is no clear signal that similar changes are being made in the curriculum of grad-level macroeconomics. A recent panel discussion among academic economists featured the admission that the 2008 crisis was the most embarrassing empirical failure of the profession since the Great Inflation of the 1970. Yet, in the same breath, that professor said he wouldn’t change a thing in his teaching. Indeed, a glance at the macroeconomics syllabuses of several top Canadian grad schools find little evidence of a shift away from teaching the rational expectations-grounded macro models that have come under criticism.

Professors tend to teach what they are taught. With the sunk cost of prepping for PhD macroeconomic comprehensive exams, they have little incentive to develop a new course involving subject matter in which they are not trained. Further reinforcing the status quo is the tendency to teach what you research. Working in a climate of publish or perish, macroeconomic profs have good reason to not deviate from the dominant research agenda, which remains wedded to 1970s macro. In the absence of strong leadership for change or a mandate from either the dean or the premier to sit down with one another and re-design the curriculum, teaching macro in the post-crisis era will continue to be business as usual.

Yet this is not in the public interest. Given the acute financial stress experienced ten years ago, we have a stake in knowing that the policy makers of tomorrow are well prepared to confront episodes of economic downturn and instability. Learning to use a larger modeling toolbox is part of such preparation.

So, what are Canada’s economics students to do in the meantime as they are grind through the math describing a DSGE model? As befitting any college course where critical thinking is one of the learning outcomes, here are some questions students may ask about the models they are taught:

1. Who is in the model? The basic models tend to have a single agent representing all consumers who are assumed to be sufficiently alike as autonomous rational optimizers sharing common knowledge. Can the model accommodate multiple actors who may differ by age, preference, belief, resources and class?

2. Is there room for “black swans”? The 2008 crisis was precipitated by the collapse of the U.S. subprime mortgage market, an event deemed of low risk but of high impact. How does the model address this and other examples of fundamental uncertainty?

3. What kind of markets are modelled? Models with perfect competition behave very differently from more realistic models with imperfect competition, information asymmetries, price rigidities and institutional constraints.

4. Is there a financial sector? Perhaps the strongest criticism of the 1970s macro models was the reduction of complex financial plumbing to a single interest rate variable. Can these models feature lenders and borrowers? Are there banks? How does money fit in?

5. Does the model have to move to equilibrium? Following an economic shock, standard models tend to instantaneously jump to a new equilibrium path. However, observations of macroeconomic variables as they unfold over time suggest that such adjustment may be a much slower, sequential process. Understanding this path of adjustment may be of greater importance than the equilibrium destination.

6. How are these models empirically tested? A model’s usefulness should be judged by how it explains actual economic history.

With these and other critical questions about the core macro teaching models, tomorrow’s dismal scientists should be better prepared to confront challenging economics times.

There’s an exceptional opportunity for a bright and critical-minded economist who is as passionate about social justice and working on behalf of unions and working people as they are about working with spreadsheets: CLC Senior Economist.

Members of the Progressive Economists Forum noted with dismay the premature cancellation of Ontario’s basic income pilot and have penned an open letter to Federal Minister Jean-Yves Duclos (Families, Children and Social Development) calling for federal support for the project. So far, the letter has been signed by 50 Canadian economists and researchers.

_____

Dear Minister Duclos:

As economists and researchers, we noted with dismay the premature cancellation of Ontario’s Basic Income Pilot. The announced cancellation before the first anniversary of full enrollment ensures that no useful data can have been collected to date, and none will now be collected. This deprives not only Ontario but also the rest of Canada of valuable evidence that might have influenced policy. Ontario was one of several Basic Income experiments worldwide that, together, would have allowed international comparisons and rational policy development.

We, the undersigned economists and researchers, are writing to ask you to use the resources and authority of your office to salvage what you can of the Ontario Basic Income Pilot for the benefit of all Canadians and, especially, to ensure that the 4,000 vulnerable participants who agreed in good faith to participate in Ontario’s experiment are treated in a just and humane manner.

Closing the experiment with no announcement of how participants will be transitioned out of the program is unethical. Participants used the money they received from participation in the experiment and relied upon the promises that were made by the Ontario government to make long-term plans to better their lives. They leased apartments, registered in postsecondary education and borrowed money to invest in the future wellbeing of their families. As a result of the cancellation, they are likely to be worse off now than before they agreed to open their lives to researchers. This is unconscionable and must not be allowed to happen.

Over at the Research Blog of the Calgary Homeless Foundation, I’ve written a ‘top 10’ overview of a study on which I’m co-author. It essentially asks the question: “When homeless people are placed into subsidized housing with social work support, for how many months/years do they require that social work support?”

The study relies on an impressive data set about ex-homeless people who’ve been placed into subsidized housing with social work support in Calgary. Methodologically, the study uses survival analysis and hazard models.

The late Abraham/Abe Rotstein (1929-2015) was an economist of a leftist persuasion, literally a Left Liberal. He left behind an almost completed manuscript which he had been working on for more than three decades. It has now been published. Its title Myth, Mind and Religion: The Apocalyptic Narrative is indicative of its extraordinary breadth.

Problems, possibilities, catastrophes, which compel resolution present themselves in an apocalyptic manner: oppressor/victim, inversion of victims into masters, and a salvation regime as the outcome. There are chapters on Jesus, Luther, Hegel, Marx, Hitler, etc. For example, Marx, in a manner familiar to economists: capital oppresses labour, the proletariat as victim overthrows the capitalists, there is heaven a.k.a. communism on earth.

Rotstein chose to go far beyond his own discipline of economics – which is a tribute to his intellectual courage – but he is not without relevance to our present day concerns about matters economic and beyond in these turbulent, perhaps apocalyptic, times.

On contemporary matters, Rotstein reminds us of, in his words, the Radical Decade from the mid-1960s to the mid-1970s. The cry was for liberation – by black people and indigenous people from racism and for civil rights, students, colonies and dependencies from the imperium, women, gays – and for respect for the environment, for Nature, from the assaults of capital in particular. Radicalism proved ephemeral but the demands have not ceased.

Rotstein was writing before Trump and the rise of the alt-right, but, as noted, he does deal with Nazi fascism, of the perverse claim that the populace was oppressed by the Jews, the Other of the times, and must be annihilated. Today it is immigrants and refugees who constitute the Other and who must therefore be oppressed in the name of white supremacy.

Rotstein sees out-of-control technology as the apparent menace of our times – think today’s carbon emissions and climate change, the attacks on privacy and democracy by digital media, job destruction from artificial intelligence, “the robotization of life.” The victims are the many but what or who are the oppressors and what is to be done.

Rotstein is no longer with us to discuss these matters. His legacy is to warn us of the dangers of apocalyptic thinking, a mode of thought that he sees as characterizing the Judaeo-Christian West for three millennia.

The provincial election of June ended 15 years of Liberal electricity policy in Ontario. Anger over high electricity prices continued to be an election issue, contributing to the Liberal loss of power and official party status (reduced from 55 to 7 seats). The PCs have formed Government with 76 seats, while the NDP is official opposition with 40 seats, and the Green Party won their first seat.

The PC Government has moved quickly to act on some of their election promises and other unannounced initiatives, including on the electricity file, convening an exceptional summer session of the Legislature. The new Minister of Energy, Greg Rickford, cancelled 756 renewable energy contracts via Ministerial Directive in early July. Later in the month the Government rushed an omnibus Act through the Legislature (time-allocated debate, no Committee review, no public hearings, no opportunity for amendments) that changed the governance of Hydro One and canceled the White Pines wind power contract in Milford. Here I will first review the Government’s options with respect to the Liberal’s “Fair Hydro Plan” (FHP) before I discuss these cancellations.

The question is taken from the title of an article by Nancy Olewiler of Simon Fraser University in the Canadian Journal of Economics (November 2017), which, as it happens, was delivered as the Innis Lecture at the meetings of the Canadian Economics Association in 2017: “Canada’s dependence on natural capital wealth: Was Innis wrong?” Her answer: she writes “Literature and recent debate reject his prediction that Canada would suffer lower levels of economic growth and well-being due to its dependence on exporting its natural resources,” and then, after some testing of her own, reaffirms this position. Her research is of interest in its own right but quite misleading as to Innis.

It is not even clear that Innis can be read as holding to such a pessimistic view. The economic historian Peter George, in an overview of the history of mining in Ontario in 1967 writes: “Innis believed that the mining industry would reduce Ontario’s dependence on the export of staple commodities by contributing to a highly integrated advanced economy” and adds “Ironically Innis was wrong in his optimism with respect to mining.”

Innis was, it must be insisted, an economic historian and can hardly be said to have had a central interest in “prediction” – or even policy which is the central concern of the economist today. In fact, Olewiler offers no evidence that he was wrong in his historical writings which is what matters most in an evaluation of Innis. The jury can give little weight to Olewiler’s substantive contemporary findings, post-1990 – being two decades of a half-millennium!

Olewiler’s error lies in imagining that she is giving a definitive assessment of Innis or of the staple approach to Canadian economic history.

What is lost in Olewiler’s reductionism of Innis is the breadth and depth and sheer power of his historical writings: “The economic history of Canada has been dominated by the discrepancy between the centre and the margin of western civilization. Energy has been directed toward the exploitation of staple products and the tendency has been cumulative…Agriculture, industry, transportation, finance and government activities tend to become subordinate to the production of the staple for a more highly specialized manufacturing country.”

It is true that Innis was incorporated in the 1960s and 1970s into the emergent New Canadian Political Economy where there was a tendency to see Innis as a pessimist and Mackintosh as an optimist on Canada’s economic prospects as an exporter of staples. But to be fair both to Innis and to the new political economists, their focus was more, much more, on Canadian dependence as a marginal area within the American empire. This is not a matter on which Olewiler has anything to say; she is an economist and not a political economist and her answer must be seen in that context.

Daniel Drache described Canada as a case of “advanced resource capitalism” and Olewiler’s evidence on productivity supports that designation. Drache is also known as a leading analyst of the “staple trap” and it would be hard to find a clearer example of that than today’s bitumen.

Olewiler is also unaware of the important post-Innisian book by the respected economic historian W.T. Easterbrook, North American Patterns of Growth and Development (1990) which sees Canada’s economic history in a continental context in the long run as one of “growth, “of a “pattern of persistence” as a staple exporter, in contrast to a “pattern of transformation,” of “development,” in the northern United States. To return to mining as a staple, to further complicate the story, Canada’s new global dominance in gold might be cited today as evidence of imperial competence suggestive more of the transformation of a centre than the persistence of a margin.

Where Olewiler is to be lauded – and forgiven overall – and where Innis, albeit like the mainstream economists who were his contemporaries, was wrong, was with their general neglect of social costs such as the consequences for the environment of resource extraction. I am wholeheartedly in agreement with Olewiler that, whatever our view of Innis, climate change from fossil fuels – from oil and gas as staples – compels us to see their extraction as intolerable.

Olewiler is also right in seeing Innis as a student of regionalism and its exacerbation by staple exports, which is indicative of his relevance to the study of Alberta and the tar sands. National policy on climate change is presently impaled by this. In the insightful language of Brendan Haley, the staples trap is alive and well as it has morphed into the carbon trap. And as Gordon Laxer has demonstrated in his research on the tar sands, the staple approach has, unfortunately, been given a new life in Canadian studies. Olewiler, in her deft description of the tar sands and climate change, unwittingly affirms the staple approach and Innis in the large.

Mariana Mazzucato. The Value of Everything: Making and Taking in the Global Economy. Allen Lane. 2018.

The playwright Oscar Wilde quipped that a cynic is a person who “knows the price of everything and the value of nothing.” As Mariana Mazzucato argues in her important and stimulating new book, “The Value of Everything,” that adage could be applied to the vast majority of mainstream, neo-classical economists.

Mazzucato is the author of the previous bestseller, The Entrepreneurial State, which argued that governments have been absolutely pivotal to the innovation process in successful advanced industrial economies, often taking on big risks and opening the way for later private sector investment. Her new book broadens the argument, claiming that mainstream economics is systematically wrong about the value creation process and needs to be replaced by a new framework which distinguishes clearly between value creation and unproductive and destructive value extraction.

This argument is important in setting the stage for a social democratic economics and a genuinely mixed economy where governments would take an active economic leadership and investment role and tightly regulate the private sector in the public interest. Social democrats have too often conceded to the argument that private sector entrepreneurship is the driving force of wealth creation, and that governments should largely confine themselves to re-distribution of income and wealth through progressive taxes and welfare state programs.

Contemporary neo classical economics makes market prices the only measure of value, and sets aside the distinction made by the classical economists (Smith, Ricardo and Marx) between productive and unproductive economic activity and labour. In the neo classical world, profits reflect and are justified by the productive contribution of capital, and the fact that goods and services are sold on the market for a profit shows that they have value to consumers. In this light, the national economic accounts largely exclude or hugely undervalue production outside the market by households and by governments, and fail to register the fact that many significant private sector activities are parasitic on the productive economy and actually destroy value.

The dominant paradigm was actually overthrown at a highly theoretical level during the famous Cambridge capital controversy of the 1950s and 1960s, when Joan Robinson argued that profits could not be shown to reflect returns to capital, but rather reflected the balance of bargaining power between capital and labour. To be sure, investment in physical capital and research by the private sector make an important contribution to value creation, but wealth creation is above all a social process.

It is nonsense to argue that the wealth and income of hedge fund billionaires reflects their individual productive contribution, as opposed to their ability to extract profits from socially created value. Many progressive economists such as Nobel prize winner Joe Stiglitz argue that much of the modern economy consists of sectors in which rents or excess profits are extracted by dominant businesses due to limited competition and control of intellectual property rights among other factors. For example, big pharma and the tech giants like Google and Facebook earn profits well above normal rates of return due to their power to shape markets.

Mazzucato closely documents the value extraction role of the finance sector, whose share of total profits has grown rapidly since deregulation in the 1970s. While banks and other financial institutions do play a productive role in part by directing financial capital to productive uses, most real business investment is in fact financed by retained corporate earnings. Meanwhile, finance has directed resources to almost purely speculative and economically destabilizing activities such as hedge funds and creation of exotic financial instruments such as derivatives which merely transfer dollars between winners and losers, as in a casino where the dealer always wins.

As well, finance has had damaging impacts upon real economy highly productive businesses by inisting on maximizing shareholder value and demanding short term profits paid out through dividends and share re purchases as opposed to providing ‘patient’ capital for long term investment in equipment and innovation which boost real value added and productivity. Despite years of so-called financial innovation, it is hard for truly innovative new companies to attract capital since even venture capital funds are oriented to a quick turnover of capital and have very high “hurdle” rates of return In this context, very early start up capital often comes from governments which are prepared to take bigger risks for bigger long-term payoffs.

Mazzucato further argues at length that governments play a much more important role in value creation than is often appreciated. Much of government activity is treated in the national economic accounts as consumption, even through public services help create a great deal of value in the private sector. Public sector spending in areas such as education at all levels and basic research is very much part of the social process of production and value creation, and governments often create the markets served by the private sector. For example, the DARPA program in the United States created the internet and the basis for much of the digital information economy through basic research and support for private sector pioneers.

It has only been recently that government investment has been partially recognized as such in the economic accounts, and conventional accounting still judges the value of public services to be the costs of inputs, mainly labour. By this definition, more public spending cannot raise productivity and value-added in the economy.

As in her previous book, Mazzucato is very much an advocate of an expanded entrepreneurial role for government in supporting, not just research and high levels of public investment, but also in setting ambitious goals and missions, such as decarbonizing the economy. She argues that governments should take an ownership stake in the productive economy to collect a social return on public investment for citizens which could be used to fund social programs and public services as well as to create greater social equity. In the Canadian context, she would likely favour taking large equity stakes in innovative enterprises to provide long term capital for growth, while also seeking greater control of the economy and a fairer distribution of income and wealth.

The Value of Everything is a stimulating and informative overview of value creation and destruction in today’s economy. It is very much part of a wider project to develop a new progressive and social democratic economics oriented towards the creation of real value and social equity, as opposed to maximizing GDP.

Andrew Jackson is Adjunct Research Professor in the Institute of Political Economy at Carleton University, and senior policy adviser to the Broadbent Institute

An essential but perhaps overlooked way of looking at the economy is a sector financial balance approach. Pioneered by the late UK economist Wynne Godley, this approach starts with National Accounts data (called Financial Flow Accounts) for four broad sectors of the economy: households, corporations, government and non-residents.

Here’s how it works: in any given quarter or year each sector can be a net borrower or lender, but the sum of the four sectors’ borrowing/lending must equal to zero. This is an accounting identity reflecting the fact that one sector’s borrowing must be another’s (or the combination of all others’) lending.

Consider a government deficit. The flip side of that deficit is that some other sector(s) is in credit by the same amount. For example, a $1 billion in government borrowing must be matched by $1 billion in lending from some combination of households, businesses and non-residents. The same is true about the balances for any other sector. The overall balance for the domestic economy (households, corporations and government) must be offset by an equivalent balance vis-à-vis non-residents.

We can look at these flows over time and map them on to events and policy actions affecting the Canadian economy. Some caution must be taken around interpreting causation in this analysis, but it is a useful framework for thinking about what’s happening in the economy.

Figure 1 shows the four sector balances going back to 1990 (as a percentage of GDP). The lead up to and period after the 2008 global financial crisis is also of great interest. Lines above zero represent a credit position, or net lending; below zero is a deficit position, or net borrowing.

Let’s start with government, in this case the combined federal and provincial government balance (in grey). Many readers will remember the large government deficits of the 1980s and early 1990s, which were headline news and to this day have biased the thinking of all political parties towards austerity. In the early 1990s, those government deficits were largely financed by households (blue) and non-residents (yellow).

As the Canadian economy recovered from a bad recession in the early 1990s, it gained strength through the rest of the decade. Strong revenue growth combined with spending restraint drove combined federal and provincial deficits to zero by 1997, followed by surpluses for most of the next decade (apart from two very small deficits in 2002 and 2003).

In the wake of the 2008 financial crisis we then see the government balance drop to a deficit of 4.7% of GDP in 2010, reflecting expansionary fiscal policy. Relative to GDP these later deficits are nowhere near as large as the deficits in the early 1990s. In each case of deficit, however, it is useful to remember the flip side: the private sector wanted to buy government bonds. Around 2008-10 in particular, investors wanted safe havens in which to place their money.

The changing behaviour of households (in blue) is significant. Historically, it was households who were net lenders to corporations and governments. I was not able to get data prior to 1990 online but that surplus position for households continues before 1990 as well.

That dynamic changes in the mid-1990s. As governments borrowed less, households lent less. But when governments turn to deficits after 2008 it is not households from whom they are borrowing (as would have been expected given historical patterns). Indeed, households become net borrowers as of 1997 and remain so to this day, with net borrowing peaking at 4.8% of GDP in 2007. There is some retrenchment back to 2.2% of GDP by 2009, but household borrowing starts to grow again in the 2013 to 2017 period, and hits 3.5% of GDP in 2017.

This should not be a surprise to anyone following the Canadian economy, in particular the run-up in mortgage debt in recent years. This era, especially 2001 onward, is characterized by very low interest rates, which enable households to take on more debt for a given level of income. And as home prices rose, this new equity for homeowners allows for even greater debt loads. Unfortunately, these data do not break down the distribution within the household sector, so the total is masking some deeply indebted households while some percentage of wealthy households would be in credit positions.

What about corporations? Historically corporations borrowed from households (before the period in Figure 1), but starting in the 1990s, then really picking up in the 2000s is the fact that corporations become net lenders. A study from Statistics Canada attributed this to surging profits accompanied by a slowdown in capital investment (i.e. machinery, equipment and factories) and an increase in financial investments. This pattern of “dead money” – in the words of then-governor of the Bank of Canada Mark Carney – has deteriorated in recent years and the corporate sector even goes into deficit in 2015.

Figure 2 breaks out the corporations balance into financial (banks, insurance companies, etc) and non-financial corporations. Financial corporations are consistently in a net lender position, as would be expected. Non-financial corporations show greater volatility, but notably swing into a net borrowing position since 2012.

Finally, go back to Figure 1 and look at non-residents. In the early 1990s non-residents lent to Canadian governments, but during the 1999-2007 period Canadian corporations were net lenders to non-residents, perhaps reflecting trade and investment liberalization.

After 2008, we see a dramatic shift to non-resident lending, and at fairly large magnitudes of around 4% of GDP per year. Even while government deficits shrink after 2010, the total inflows from non-residents continue through to 2017. These data do not tell us from which countries the flows from non-residents are coming, although the US is historically Canada’s largest foreign investor by far, followed by several European countries (Netherlands, Luxembourg, UK and Switzerland).

Overall, this analysis shows some major shifts in the relationships across sectors of the Canadian economy. The shift of households into an ongoing deficit position is notable, as is the role of non-resident lending in recent years. Restrictions to dampen housing markets and the introduction of foreign buyer taxes in BC and Ontario suggest non-resident lending will decline as a share of GDP. And the record levels of household indebtedness, plus increases in interest rates, also point to a potential rebalancing for the household sector.

** With thanks to Joelle Leclaire and David Pringle for comments on an earlier draft.

I’ve just reviewed Professor Carey Doberstein’s book on homelessness governance (UBC Press). The book looks at the way decisions were made pertaining to funding for homelessness programs in Vancouver, Calgary and Toronto during the 1995-2015 period.

Points raised in my review include the following:

-Homelessness trends look quite different across the three cities. For example, it can be growing in one city, but declining in another.

-One of the book’s main arguments is that better decisions pertaining to homelessness programming are made when multiple stakeholders are engaged in decision-making early and often.

-The book argues that Vancouver and Calgary have done a relatively good job of such engagement—more so than Toronto.

Last month I published a full-length article in the “The Monitor” magazine providing a “how we got here” analysis of the Ontario electricity sector and some options for the next Government. Since then, two things have changed: first on May 31 two investigative journalists, Carolyn Jarvis and Brian Hill, wrote an excellent story for Global News about how successive Liberal Ministers of Energy ignored expert agency advice, which resulted in Ontario households having to pay billions of dollars more for electricity (see 3:51 Global News video here); and second, on June 2 the current Liberal Premier conceded that the Liberal party will not win the election to be held tomorrow (June 7).

My article brings together and updates the four electricity-related blogs that I’ve prepared at the PEF (first, second, third and fourth), focusing on the gradual, stealth privatization of electricity generation and showing how criticism of this process by progressive groups was muted by the promise of energy democratization and renewables (wind and solar) generation that would help reduce emissions and pollution. The electricity sector in Ontario became a prime case study of some of the inequality-creating trends buffeting our societies. Corporations (and their investors) who secured lucrative contracts and high-income households and speculators that could afford solar panels made out like bandits, while low-income households in Ontario faced growing electricity poverty. When prices became a political liability, the government responded not by going after the power producers, but rather by borrowing on behalf of ratepayers. I argued that objectives matter, and that the experience in Ontario shows that governance, policy and implementation matter even more.

Ontario Conservative leader Doug Ford finally released a partially costed version of his election promises in his Plan for Ontario in the last week before the election. This includes approximately $7.6 billion in tax cuts and revenue reductions and a net $500 million reduction in annual spending.[I]

At the same time, Ford has also promised that “we will balance (the budget) maybe the third or fourth year” e.g. by 2021/22. While Ford has claimed he wouldn’t lay off public sector workers—unlike his predecessor Tim Hudak who promised he’d lay off 100,000—with his additional billions in tax cuts, it will be impossible to balance Ontario’s budget in three or four years without job losses.

This analysis provides best guess estimates of the employment impact of Ford’s promises using economic multipliers publicly available from Statistics Canada and Finance Canada. A previous post by Edgardo Sepulveda includes an analysis of the impacts on inequality of the different parties’ fiscal plans, finding that the Ford plan would increase inequality the most, while the NDP plan would reduce it, while a recent post by Jim Stanford includes a prescient guestimate that Ford’s plan would lead to a net loss of about 75,000 jobs. The analysis provides a more detailed summary estimates of the likely impact of Ford’s plan on jobs using these multiplier tools.

Ford has said he would balance the budget by achieving “efficiencies” through spending cuts of about 4%, but he hasn’t provided any details of those. Given his promises of over $7.6 billion in annual tax cuts, a 4% cut to the Ontario government’s overall spending still wouldn’t be enough to balance the budget by 2021. He’d need to cut Ontario’s program spending by 4.9% from its projected levels in 2021/22 to eliminate the deficit[v]. In the absence of any further information from Ford and the Conservative party of what degree and how he would cut spending, this analysis considers three scenarios:

A proportional cut to Ontario’s program spending[ii] of 4% or $6.2 billion effective in 2021. This would still leave a deficit estimated at $1.3 billion for that year using the Liberal government’s accounting.

A proportional cut to Ontario’s program spending of $7.6 billion or 4.9% of program spending that would be required to balance the budget by 2021 given Ford’s additional tax cut promises.

A cut to public spending of $13.6 billion or by 8.8% of program spending, in 2021. This is the amount that would be required to balance Ontario’s budget in 2021 using the Auditor General’s recommended accounting treatment for the Liberals Fair Hydro Plan and net pension assets, which adds $6 billion to the deficit.

The job losses from these spending cuts would be counter-balanced to some degree by indirect and induced job gains resulting from increased private sector spending resulting from Ford’s promised tax cuts. However in all these scenarios, the public and private sector job losses associated with spending cuts would significantly exceed job gains from tax cuts. In fact, even with the more modest spending cut scenario, the largely private sector job losses resulting from cuts to public spending would exceed the jobs generated from tax cuts.

On May 28th, 61 Canadian economists (myself included) signed the following letter urging the federal government to instruct the Bank of Canada to consider full employment and not only inflation when conducting interest rate decisions. It was through the great organization of Mario Seccareccia that this was made possible and has received reviews by several media commentators, notably Barrie McKenna and Neil Macdonald. Follow the links for the PDFs of the English letter, French letter. This is the text of the English letter:

Letter Addressed to Honourable Bill Morneau, Federal Minister of Finance of the

Government of Canada, by Canadian Economists in Support of a Multi-Goal Mandate for the Bank of Canada

We wish to encourage the Canadian Government and, more specifically, the federal Minister of Finance, the honourable Bill Morneau, to instruct the Bank of Canada to pursue policies more consistent with its official broad mandate as stipulated in the preamble to the Bank of Canada Act:

“ … to regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit and to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of Canada.” http://laws–lois.justice.gc.ca/eng/acts/B2/page–1.html

The number-cruncher in me cringed in sympathy for the anonymous research nerds who made the now-famous math error in the Ontario NDP’s fiscal platform. They wrongly added a $700 million contingency reserve to net revenue, instead of to expenses. The result is an underestimation of the planned deficit (if we include that reserve – more on that below) by $1.4 billion in each year.

Pompous voices predictably crowed that this error confirms the NDP’s supposed lack of fiscal credibility. In practice, though, this accounting tempest will turn out to be a non-event in this dramatic election campaign – and in fact, it may counterintuitively help the party’s surging campaign, rather than hurting it. Read more »

Review of Worst-Case Economics: Extreme Events in Climate and Finance by Frank Ackerman

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Long ago economics was termed “the dismal science,” but in recent years that title has arguably been passed on to climate science, with its regular and dire warnings that humanity needs to rapidly transition off of its use of fossil fuels for energy. In the face of such calls to action, progress has been frustratingly slow. The 2015 Paris Agreement offers some hope, as does the small-but-growing share of renewable technologies, but by and large countries are not doing enough to meet Paris’ grand aspiration of keeping temperature increase between 1.5 and 2 degrees above pre-industrial levels.

Our collective inability to rise to the climate challenge may be related to our inability to imagine the consequences of inaction. Humans tend to think about immediate threats to our well-being, whereas climate change is a slow burn without clarity about how it will play out spatially and temporally. We understand that tipping points with irreversible consequences lie ahead, but do not really know at what point those critical thresholds will be crossed.

Worst-Case Economics steps into this fray by providing a refreshing look at the state of the economics discipline and how its standard toolkit leaves us poorly equipped to address two pressing concerns of the 21st century: financial crises and climate crises. The book aims to infuse recent lessons of the former into the latter.

Over the years I have greatly admired Frank Ackerman’s work on cost-benefit analysis, the social cost of carbon, and the economics of climate change. This book compiles much of that analysis under one cover, but goes beyond by critically examining how economists think (or don’t think) about extreme events.

Ackerman shines when dissecting the core assumptions of neoclassical economics, the dominant academic form of the discipline. His critique begins with 19th century economic models emulating classical physics and the concept of equilibrium. But while physics moved on in the 20th century, economics did not. So we are left with theoretical models that require an array of simplifying assumptions that abstract away from the nature of real-world economic problems. In the simplified neoclassical view of the economy humans are assumed to be rational, self-interested maximizers, who are unswayed by advertising, fashion or the behaviour of their peers. There is no market power, insider information, nor external costs imposed on third parties (like carbon emissions).

To be fair, each of these limitations has been explored in the economics literature, but usually only as one-offs, while still upholding the other standard assumptions. Ackerman points out that it is precisely these deviations from the model – bounded rationality, susceptibility to social pressures, imperfect markets – that are central to understanding financial or climate crises.

That said, Ackerman may be putting too much blame on economics, and not enough on the failure of politics to implement adequate climate policies. Climate change is a collective action problem that requires governments to step in, but this fundamentally conflicts with conservative values and the free market worldview of the right.

One area where economists have had a disproportionate effect on the public climate conversation is around carbon taxes. The economics of carbon taxes goes back to the Arthur Pigou looking at smokestack England in the 1920s, and the idea that there are external costs imposed onto third parties from certain market transactions. In the case of carbon emissions the fix is to “internalize the externality” through a price on carbon.

Ackerman comments that “ ’getting the prices right’ is an incomplete response to climate change and other complex environmental problems.” We don’t actually know when certain tipping points will be reached, and poorly understand the value of expected damages. We can develop estimates from models but they are riddled with uncertainties about the future. At one extreme, the “dismal theorem” proves the value of carbon reductions to be literally infinite if we accept worst-case scenarios that destroy the sources of human well-being or that undermine the ability of the human race to survive.

Standard cost-benefit analysis is particularly ill-suited for addressing extreme risks in Ackerman’s view. Even under ideal circumstances, attempting to put a dollar value on human life or suffering is a task that is fraught with difficulty. For finance and climate, cost-benefit analysis has limited utility because it looks at potential outcomes in terms of averages, and does not consider low-probability events with catastrophic implications. It is one thing to assess risk when dealing with well-defined problems with an accumulated evidence base from past events; quite another when uncertainties abound and climate change itself affects the probabilities and magnitudes of damages.

In place of neoclassical approaches, Ackerman shows that financial crises are far more common than would be expected from a “normal” distribution (i.e. the standard bell curve). The same non-linear relationship is likely for climate extremes meaning our standard practices greatly understate the likelihood of extreme events. Such extreme weather events are already becoming our new normal: heavy precipitation events that overwhelm storm sewers; heat waves causing premature death; and, extreme dry conditions fueling forest fires.

Insurance is central to a response. Ackerman notes that people are risk averse and so are willing to pay for a proposition that is likely to lose them money on average in order to guard against a truly catastrophic outcome. It would be interesting to scale this thinking globally to events larger than private insurance companies can handle: regional crop failures or disasters that displace millions of people.

Likewise, developing scenarios can help us make decisions. But when all we can know is what the worst-case scenario might look like, the precautionary principle should guide our decision-making. Ackerman invokes the war-time mobilization as a model for rapidly dealing with climate change.

The book’s linkage to our growing understanding of financial crises provides much interesting fodder. But the analogy is imperfect: economic thinking based on periodic financial crashes does not ultimately translate well into the climate discussion of crossing irreversible and catastrophic tipping points, such as changes in the Earth’s ocean circulation system, the collapse of the Amazon rainforest, or the loss of Greenland’s ice sheet.

It may just be that rigorous mathematical economic models are not suitable for these lurking disasters. Ackerman concludes by stating: “There is no fixed formula for good policy decisions about the greatest risk, no calculation that leads automatically to the right answer. Politics, ethics, and judgment inevitably enter the decision-making process, along with science and economics.”

In other words, just get on with it. The future is at stake and we can, and must, do better.

The Progressive Economics Forum is pleased to announce Jim Stanford as the winner of the 2018 Galbraith Prize in Economics.

The selection committee included Fletcher Baragar (Manitoba), Hassan Bougrine (Laurentian), Toby Sanger (Canadian Union of Public Employees), Christine Saulnier (CCPA-NS) and Kevin Young (University of Massachusetts at Amherst), and was chaired by David Pringle (PEF). Jim has accepted the Prize and will deliver the Galbraith Lecture at the Canadian Economics Association meetings at McGill University, Montreal on Saturday, June 2 (https://economics.ca/2018/en/program.php). Many thanks to our judges and to the Galbraith family.

Below is the nomination statement of Dr. Stanford by Marc Lee (CCPA-BC) and thirteen other signatories, which does a great job to summarize his extensive career.

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We nominate Jim Stanford for his outstanding contributions to progressive economic thought and movement-building in Canada over the past two decades.

Jim’s PhD dissertation at the New School developed a CGE model using real-world assumptions leading to results that challenged the mainstream view about the benefits of NAFTA.

Jim rose to prominence as a public intellectual as Economist for the Canadian Auto Workers union and Unifor (for which he played a significant role in its founding). His work at the bargaining table supported the interests of hundreds of thousands of workers in Canada.

Also during this time, Jim was a key Research Associate and Board member of the Canadian Centre for Policy Alternatives. He published accessible op-eds and research papers on a wide range of economic policy topics, including the federal budget, free trade deals, industrial policy, labour markets and regional development.

At the CCPA, Jim was a guiding force behind the Alternative Federal Budget. His AFB forecasts regularly embarrassed the federal government, whose “prudence” often caused greater-than-necessary austerity. Jim’s track record was perhaps the single most influential reason why Canada now has a Parliamentary Budget Officer.

Jim’s first book, Paper Boom, published in 1999, was an early critique of financialization – the split between the real economy of work and wages and the paper economy of speculation and finance. His second book, Economics for Everyone, is a guide for activists, trade unionists and the general public, and is notable for its inclusion of the history of economic thought and discussion of capitalism as an economic system.

In recent years, Jim has been a respected contributor to economic debates via The Globe and Mail and CBC news panels, among other outlets. He has always done so with great compassion and humour.

All the while Jim managed to contribute papers to academic journals and conferences, and has mentored dozens of students and young economists.

Finally, Jim’s role in starting the Progressive Economics Forum cannot be understated. His efforts to build a social network of Canadian economists spanning academia, labour, research institutes and independent researchers is an enduring legacy from which we have benefitted.

All told, Jim’s accumulated body of work and contributions to labour and social movements make him an ideal winner of the 2018 Galbraith Prize.

I recently wrote a ‘top 10’ overview blog post about the 2018 Saskatchewan budget. Following on the heels of that, I’ve now written an opinion piece about the budget’s announcement of a phase out a rental assistance program for low-income households.

Points raised in the opinion piece include the following:

-Across Saskatchewan, rental vacancy rates are unusually high right now, making this a good time to provide rental assistance to tenants for use in private units (indeed, right now it’s a so-called renter’s market in Saskatchewan, meaning it’s a relatively good time for tenants to negotiate rental agreements with private landlords).

-Thus, rather than phasing out the program, it would have been sensible to have expanded it.

-Phasing it out will very possibly lead to more homelessness, which in turn may lead lead to higher public costs elsewhere (especially to the health care sector).

Interestingly, just yesterday the Saskatchewan Landlord Association made many of these same points themselves; they like the rental assistance program, as it increases demand for its members’ housing units (many of which are currently sitting empty).

It’s of course also important for government to finance housing owned by non-profit entities. I recently wrote about the importance of a variety of measures to improve housing affordability in the housing chapter of this year’s Alternative Federal Budget.

The political economist Karl Polanyi, author of the 1944 volume The Great Transformation: The Political and Economic Origins of Our Time, is arguably better known today than during his lifetime. The time has come for a major biography of Polanyi, Karl Polanyi: A Life on the Left by Gareth Dale. It is thoroughly excellent and provides the occasion to ponder the relevance of Polanyi today.

His book was a response to more than a century of globalization that fell apart in the 1920’s and 30’s, culminating in the Great Depression, Hitler’s fascism and World War II – all of which came to be seen, in the boom times of the 50s and 60s, as merely bad old history. Meanwhile in recent times the renewed wave of globalization following that War went seriously awry in the financial crisis of 2007-8 and the emergence (again) of the fascistic alt.right, with the unimaginable triumph of Trump in America, the very centre of global capitalism. Economics had wandered off to the right and was less than useless on such matters. Politics had to be brought into that universe and Polanyi’s progressive economics a.k.a. political economy was suddenly relevant again, there for the taking.

By 2001 when a new paperback edition of The Great Transformation was published there was sufficient unease about the drift of things global that the progressive Nobel prize winning economist, Joseph Stiglitz was asked to write a new Foreword, and he began, in true Polanyi style, by citing the reaction, the progressive countermovement, evident in the public marches against international financial institutions in Seattle in 1999.

Now, in 2018, things have degenerated sufficiently that it makes sense to go back and see what Polanyi saw as the explanation for fascism and how that might cast light on today’s darkness. Ironically, Hungary, from whence Polanyi came, has, as I write, re-elected to a third consecutive term, a right populist alt.right government with a stunning two-thirds majority.

For Polanyi, famously, there was a double movement in the annals of political economy: the driving force of the market creating losers as well as winners, as movement, the responding force of democracy as counter-movement. If the outcome became one of stalemate, there would be crises without a government able to resolve them, a situation much worsened historically by the rules imposed by the international gold standard. The deadlock created an opening for extremism, of the revolutionary left as in the Soviet Union as reaction to World War I, of fascism as in Italy and Germany, with the latter as reaction to the former. Each in its own way meant the end of democracy. Out of all this came the barbarism of World War II.

Today, the gold standard has been replaced by the iron laws of globalization. The extreme neoliberalism of the American government precluded offering protection, or assistance, to the losers, notably in the American rust belt who became the core support for Trump. We are now observing a threat to the American way of conducting politics, of American democracy, analogous to that of the 1930s. The creative response then was the New Deal, its legacy now exhausted. Today it is Trumpism, still in its early days, the fullness of which is uncertain, as is the fate of America and thereby of the rest of us. At the same time, similar forces led to Brexit, the consequences of which, for Europe and, again, the rest of us, remain to be seen. Polanyi sees unresolved national issues – open sores, bleeding wounds, like anti-semitism and the humiliation of the settlement of World War I in Germany – as critically important to the mobilization of the masses to fascism. For Trumpism, racism, white nationalism, with deep roots in America, is manifestly the rallying cry. Stay tuned in, CNN or Fox, watch one, conjure up the other, think like Polanyi.

I’ve just written a blog post about the newly-signed federal-provincial-territorial housing framework agreement. This agreement builds on (and helps move forward) Canada’s National Housing Strategy, which was released last fall.

One of the points made in the blog post is that the federal government’s stated objective of removing approximately half-a-million households from core housing need is very ambitious, in light of what we know about the Strategy.

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